GameStop Frenzy Causes Glitches for High-Speed Traders
Brokers were unable to route investors’ orders to Susquehanna and Wolverine
High-speed trading firms that execute orders for individual investors faced technical hiccups this week because of exploding volume in GameStop Corp. GME -44.29% , AMC Entertainment Holdings Inc. AMC -56.63% and other popular stocks.
Brokers that route investors’ orders to Susquehanna International Group LLP and Wolverine Trading LLC had difficulty connecting to the firms on Wednesday and routed their trades elsewhere, people familiar with the matter said.
The two firms, though low-profile, play a key behind-the-scenes role in U.S. stock and options markets, executing orders submitted by investors using online brokerages such as Fidelity Investments, TD Ameritrade and Robinhood Markets Inc. The electronic-trading industry has faced a wave of consolidation in recent years, leaving investors and brokers reliant on a handful of trading behemoths.
Susquehanna informed its clients on both Wednesday and Thursday that it was anticipating heavy load and that they should route orders elsewhere, as the firm bolstered its stock-trading systems to handle the traffic, a person close to the firm said.
Wolverine’s trade-execution platform was stable on Wednesday, according to a person close to Wolverine, though he added that some clients appeared to have difficulty connecting.
About 24 billion shares changed hands in the U.S. equities market on Wednesday, a record, data from Rosenblatt Securities show. Volume in the options market also hit a record of 59 million contracts, Trade Alert data show.
The extraordinary volume occurred as the S&P 500 tumbled 2.6% in its steepest one-day drop since October and day traders piled into stocks and options of GameStop and other companies that have become favorites of Reddit’s WallStreetBets forum.
Two Sigma Securities LLC, which also fills orders for individual investors, faced technical difficulties because of the heavy load, a person familiar with the matter said. The trading firm is affiliated with quantitative hedge fund Two Sigma Investments LP.
Virtu Financial Inc.’s retail platform had an isolated issue that prevented it from accepting orders in all stocks with tickers starting with the letter “A” for about two hours around midday Wednesday, a person familiar with the issue said.
Online brokerages route many of their customers’ orders to electronic trading firms such as Citadel Securities, Susquehanna and Virtu in exchange for cash, a controversial arrangement called payment for order flow.
Critics say such payments skew brokers’ incentives, encouraging them to seek the highest payments rather than ensuring their customers get the best price on each trade.
Brokers and traders say the arrangement benefits investors, who get better prices than they would if their orders were routed to public marketplaces like the New York Stock Exchange or the Nasdaq Stock Market. Payment for order flow is legal in the U.S. and has been a widespread industry practice for years.
Online brokerages themselves have struggled to keep up with the flood of trading activity. In recent days, clients of Fidelity, E*Trade Financial Corp., Charles Schwab Corp. and Vanguard Group have experienced various levels of service disruptions.